Revenue Bond
Candlefocus EditorThe principal, interest and principal payments of the revenue bonds are directed to the investors of the bonds and not taxpayers. This is the main difference between revenue bonds and General Obligation (GO) bonds. GO bonds are funded through taxation, in which the principal, interest and principal payments are backed by the full faith and credit of the issuer.
The public projects that revenue bonds typically finance include public works such as highways, airports, water systems, sewer systems and similar projects that generate revenue through user fees. In some cases, revenue bonds may also finance public facilities such as hospitals, stadiums, and educational institutions.
Revenue bonds act as a form of capital for public projects, with the investor’s principal, interest and principal payments coming from the revenue generated by these projects. This type of financing is attractive to governments because the revenue from the project is used to pay off the revenue bonds rather than relying solely on tax-payer dollars.
The revenue bonds offer numerous advantages for investors, including higher yields compared to other municipal bonds due to the increased risk associated with project specific revenue bonds. Additionally, revenue bonds can be exempt from Federal, state, and local taxes in their state of issuance.
Revenue bonds can also have project specific terms that suit the need of the particular project as investors and governments have more freedom structuring the bond than general obligation bonds. This can vary from maturity to covenants, as well as security details.
Revenue bonds are a type of financing tool used to fund public projects. This instrument has numerous advantages that make it appealing to governments, investors, and users of public projects. It provides an efficient way of financing public projects while protecting taxpayers’ money. Therefore, it is an attractive financing option that is used by municipalities and other government entities across the country.